IFRS 15 introduced a 5-step model for the recognition of revenue:

1. Identifying the contract

An entity shall account for a contract with a customer only when all of the following criteria are met:

1. the parties to the contract have approved the contract (in writing, orally or in accordance with other customary business practices) and are committed to perform their respective obligations;
2. the entity can identify each party’s rights regarding the goods or services to be transferred;
3. the entity can identify the payment terms for the goods or services to be transferred;
4. the contract has commercial substance (ie the risk, timing or amount of the entity’s future cash flows is expected to change as a result of the contract); and
5. it is probable (more likely than not) that the entity will collect the consideration to

§ 252 Abs. 1 Nr. 4 HGB states that profits are to be taken into account only if they have been realised as per the balance sheet date.

HGB sets the realisation principle but does not prescribe detailed timing criteria. The timing of revenue recognition is determined by reference to civil law and IDW guidance.

In practice, revenue is recognised when economic ownership passes:

• For the sale of goods, risks and rewards usually transfer to the buyer upon delivery of the sold item.
• For the delivery of services, revenue is recognised over time as services are rendered (typically per service period).
• Contract for work (“Werkvertrag”), revenue is recognised at a point in time upon acceptance of the completed work; agreed partial acceptances allow partial revenue.

which it will be entitled in exchange for the goods or services that will be transferred to the customer.

When a contract with a customer does not meet the criteria above and an entity receives consideration from the customer, the entity shall recognise the consideration received as revenue only when either of the following events has occurred:

1. the entity has no remaining obligations to transfer goods or services to the customer and all, or substantially all, of the consideration promised by the customer has been received by the entity and is non-refundable; or
2. the contract has been terminated and the consideration received from the customer is non-refundable.

An entity shall recognise the consideration received from a customer as a liability until one of the events in paragraph 15 (a) or (b) above) occurs or until the criteria in paragraph 9 ((a) – (e) above) are subsequently met.

2. Identifying performance obligation

At contract inception, an entity shall assess the goods or services promised in a contract with a customer and shall identify as a performance obligation each promise to transfer to the customer either:

1. a good or service (or a bundle of goods or services) that is distinct; or
2. a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.

3. Determining the transaction price

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes).

When determining the transaction price, an entity shall consider the effects of all of the following:

1. variable consideration;
2. constraining estimates of variable consideration;
3. the existence of a significant financing component in the contract;
4. non-cash consideration; and
5. consideration payable to a customer.

4. Allocating the transaction price to performance obligations

An entity shall allocate the transaction price to each performance obligation identified in the contract on a relative stand-alone selling price basis.

5. Recognise revenue when (or as) the entity satisfies a performance obligation

An entity shall recognise revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service (ie an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset.

Control of an asset refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. Control includes the ability to prevent other entities from directing the use of, and obtaining the benefits from, an asset.

For each performance obligation identified, an entity shall determine at contract inception whether it satisfies the performance obligation over time or at a point in time.

For each performance obligation satisfied over time, an entity shall recognise revenue over time by measuring the progress towards complete satisfaction of that performance obligation.

When (or as) a performance obligation is satisfied, an entity shall recognise as revenue the amount of the transaction price (which excludes estimates of variable consideration that are constrained) that is allocated to that performance obligation.

IDW guidance further links profit realisation to the transfer of economic ownership. From an economic point of view, the position of the owner is generally characterised by the fact that he is entitled to possession, risk, uses and encumbrances for the economic period of use.

Revenue is the agreed consideration net of sales deductions (e.g., discounts, bonuses and rebates) and VAT.

Advance payments received on orders before performance must be reported under liabilities.